Earnings Tell The Story For Victory Giant Technology (HuiZhou)Co.,Ltd. (SZSE:300476) As Its Stock Soars 27%

Victory Giant Technology (HuiZhou)Co.,Ltd. (SZSE:300476) shares have continued their recent momentum with a 27% gain in the last month alone. The last month tops off a massive increase of 169% in the last year.

After such a large jump in price, Victory Giant Technology (HuiZhou)Co.Ltd may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 48.3x, since almost half of all companies in China have P/E ratios under 35x and even P/E's lower than 20x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Recent times have been pleasing for Victory Giant Technology (HuiZhou)Co.Ltd as its earnings have risen in spite of the market's earnings going into reverse. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Victory Giant Technology (HuiZhou)Co.Ltd

Keen to find out how analysts think Victory Giant Technology (HuiZhou)Co.Ltd's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The High P/E?

Victory Giant Technology (HuiZhou)Co.Ltd's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 15%. EPS has also lifted 6.8% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Looking ahead now, EPS is anticipated to climb by 87% during the coming year according to the five analysts following the company. With the market only predicted to deliver 38%, the company is positioned for a stronger earnings result.

With this information, we can see why Victory Giant Technology (HuiZhou)Co.Ltd is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Victory Giant Technology (HuiZhou)Co.Ltd shares have received a push in the right direction, but its P/E is elevated too. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Victory Giant Technology (HuiZhou)Co.Ltd's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Victory Giant Technology (HuiZhou)Co.Ltd is showing 1 warning sign in our investment analysis, you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.